Nation’s Money Supply Increases by $3.7 Billion

The nation’s basic money supply expanded by $3.7 billion in the latest reporting week, the Federal Reserve said Thursday in a report that sent bond prices lower.

The Fed said the basic supply, called M1, rose to a seasonally adjusted $595.4 billion in the week ended July 22 from $591.7 billion in the previous week.

For the latest 13 weeks, M1 averaged $587.5 billion, an 11.5% seasonally adjusted annual rate of gain from the previous 13 weeks. The Fed has said it would like to see M1 grow between 3% and 8% in the second half of 1985.

M1 includes cash in circulation, checking deposits and non-bank travelers checks. Because it represents funds readily available for spending, M1 is considered to be an important factor in economic trends.

Money growth has been brisk lately, which has fueled concerns in the bond market that the Fed, in an attempt to brake that growth, is ready to tighten credit and send interest rates higher.

The drop in bond prices shows that those concerns were heightened by the latest rise in M1, which was more than $1 billion more than the increase expected by many credit analysts, said William V. Sullivan Jr., senior vice president of Dean Witter Reynolds.

“It is clear the Fed is under pressure to restrain money growth,” he said.

Sullivan said there were two signs that might be interpreted as an effort by the Fed to make credit scarcer:

- The central bank drained reserves from the banking system earlier this week.

- The interest rate charged on overnight loans between banks, known as the federal funds rate, had climbed above 8% from about 7.75% earlier this week.